With us being just over a week into the New Year, we feel it worthwhile to look back just one last time at 2016. We believe that many of the themes and risks of 2016 continue in 2017 and that they are likely to impact markets in the coming months – especially the precious metal markets.

2016-review_outlook-2017Malcolm McDowell as Alex in A Clockwork Orange. Source: Wikimedia

We always enjoy new perspectives and every year we enjoy the witty, comprehensive and insightful analysis review of the year past by David Collum. His‘2016 Year In Review’ is in the same vein and was missed by many when it was released over the Christmas period.

Collum is a professor of Chemistry and Chemical Biology at Cornell University. In addition to his academic interests, he authors an annual review of the financial, economic and geopolitical year. The review is a must read and includes interesting information about the astute academic’s views on gold – he is “sanguine as ever holding large precious metal positions.”

He continues:

“Despite weakness of late, the case for gold is now in place: European and Chinese banking risks, negative interest rates, a war on cash, and omnipresent risks of a hot war in the borderlands of the Middle East and Europe. Estimates suggest 0.3% of investors’ assets are in gold.77 Traditional portfolio theory recommends 5%, offering a better than 15-fold relative performance en route. (Recall that discussion of “flow” from above.)

Let’s check in on what some of the wingnuts on the fringe of society are chortling about now:

“The world’s central bankers are completely focused on debasing their currencies. If investor’s confidence in central bankers’ judgment continues to weaken, the effect on gold could be very powerful.”

~Paul Singer, Elliott Management Corp

Gillian Tett: “Do you think that gold is currently a good investment?

Greenspan: “Yes. Economists are good at equivocating, and, in this case, I did not equivocate.”

“I can understand why holding gold would seem to be a sensible part of a national portfolio. Because there is clearly a need to take some precautions against an unknowable future.”

~Mervyn King, former head of the Bank of England

“I am not selling gold.”

~Jeff Gundlach, DoubleLine and the new “Bond King”

“The case for gold is not as a hedge against monetary disorder, because we have monetary disorder, but rather an investment in monetary disorder.”

~James Grant, Founder of Grant’s Interest Rate Observer

“Everyone should be in gold.”

~Jose Canseco, expert on performance enhancement

James Grant also went on to say that “gold is like a monetary tonsil,” leading some to speculate that his son, Charley (WSJ), slipped him a pot brownie. Let’s see if we can get the goofs too.

We’ll begin by blowing out a few ideas I do not subscribe to. I keep hearing from smart guys that gold is in short supply in the Comex or Shanghai gold exchange, you name it. These stories almost never play out. I am also a huge fan of Rickards and Maloney, but the saying “gold is money” and the notion that its price is actually the movement of the value of the dollar don’t work for me: prices of everything I buy follow the dollar, not gold, on the currency timescales. On long timescales, their assertion may be correct. Someday their assertion may even be correct on short timescales, but that isn’t right now.

What a year: I got as many electoral delegates as the bottom ten republican candidates combined, ate python, and own as much gold as the Central Bank of Canada. Per the Bank of Canada, it finished selling off all of its gold,78 probably to ensure that the U.S. didn’t attack. You think I jest? A WikiLeaked e-mail by Sid Blumenthal to Hillary Clinton revealed that France whacked Libya to make sure North Africa distanced itself from a gold dinar currency.79,80 Germany supposedly has half of its requested gold repatriated from the U.S. and France,81 which could be bullish or bearish on the half-full/half-empty logic. Venezuela repatriated 100 tons of gold a few years ago and was squeezed to sell it all back in the heat of a currency crisis.82 The Dutch depatriated their gold this year after repatriating it not long ago.83 The reasons are unclear. Alexei Ulyukayev, first deputy chairman of Russia’s central bank, assured us Russia will continue to buy gold (Figure 7), presumably as a defense against interventions from inside the beltway. Of course, the Fed is silent on the “metal whose name shall never be spoken.”

Figure 7. Russian gold reserves

In a shockingly quiet year given how much gold moved to the upside before the post-election